Property investment confidence affected by missed opportunity by the RBA

The decision made by the Reserve Bank this week to keep interest rates on hold is disappointing.

My disappointment stems from the fact that our housing markets were at a cross road, with the numbers we have been producing suggesting they could either move forward or continue in the correction phase.

The RBA outcome has left me wondering whether or not it was a challenge to the banks to identify the margin of increase they need to cover funding costs before they go about reducing rates. A rate reduction at this time would have made it very easy for them but the banks are now left with a hard decision.

I suspect that we will see some banks move independently of the RBA and in fact move interest rates up a little.

There can be no doubt that the major trading banks’ margins are being “squeezed” by increased funding costs.

If we see banks raise rates, the RBA has clearly lost some power in its ability to manage the economy with the only tool it has – interest rate settings. This is the price the government pays for political interference in commercial business activity.

It would be very disappointing to find any element of truth in what I am suggesting.

The press and many corporate entities, big and small, are keen to see a recovery in our housing markets because of the resulting impact on revenues and profits, and the want for improved consumer confidence.

Because of this, there has been better press about housing markets and the occasional use of statistics that mask the real position of what is happening in housing markets in some states.

The press leading up to the Reserve Bank Board’s meeting about the likelihood that rates would be reduced undoubtedly boosted confidence and most definitely caused an increase in activity. It probably also helped to maintain a tolerable level of retail sales activity over the Christmas selling period.

The question we now have to ask is what is going to happen now that the expected result has not occurred. Will the population over react and pull back even further?

The activity in the next two months is critical and will allow us to understand where our markets are heading.

The numbers to the end of January 2012 could be better. Had the Reserve Bank been more aware of the situation in our housing markets perhaps they would have taken a different approach to this month’s meeting.

Based on housing numbers alone I believe a rate reduction next month is warranted however, the real issue will be unemployment. If the unemployment figure doesn’t rise then a reduction should not be expected.

The Reserve Bank released its Chart-Pack this week, which summarises macroeconomic and financial market trends in Australia.

Amongst the data was the below graph on ‘Credit Growth by Sector’. That graph points to Personal and Housing finance trending down and Business being the only sector which is improving.
Credit Growth by Sector













The increasing strength of the Australian dollar is going to have an adverse impact on the manufacturing and tourism industries, causing job losses. The reduction in personal expenditure, which can be inferred from Personal Finance and Housing Finance numbers, will also impact on the construction, building and retail industries.

Our retail segment is being hit on two fronts – reduced consumer spending and the low cost of buying internationally due to the strength of the Australian dollar.

The slow housing market will lead to activity reduction in finance, valuation and real estate agent markets, which can only lead to job losses.

The immediate thing to watch over the next few weeks is the auction clearance rate as the autumn selling season gets underway.

In the table ‘Summary Housing Numbers’, rentals are presented based on new technology advancements in Residex calculations and the growth rates achieved for the specified periods are provided to date, 31 January, 2012. Negative figures are presented in red and unfortunately there has been a lot of declines in the data.

It is very reasonable to suggest that all capital city markets retreated last month. Quarterly figures are marginally better for Brisbane, Darwin, Hobart and Sydney however many have been “in the red” for a number of months now.

‘Summary Housing Numbers’

The following four graphs cover ‘Australia as a Whole’‘Brisbane’, ‘Sydney’ and ‘Melbourne’.
In each market, unit segments present as if we are moving beyond the bottom of the cycle however the movement from the bottom is not pronounced.

The less affordable market, house and land, does not present as well. On an Australia wide basis we do not look as if we are through we are through the worst of the correction phase and in most capital cities, while we may have reached the bottom of the cycle, there is no strong movement towards positive territory.

Over then next couple of months, as the reality of the actual performance of our housing markets becomes evident once sufficient data is gathered and revisions are made by other data providers, we should expect some very poor press.

This will further undermine consumer confidence and the result will cause continued corrections.

This type of press will, in my view, help move the Reserve Bank towards what it should have done this week – reduce rates. I expect a rate reduction will take place by May at the latest and I wouldn’t be surprised to see the cut as high as 0.5%.

Corrections and low confidence means bargains exist for the astute buyer so it is now time to be a careful money making investor.

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John Edwards


John is Consulting Analyst for Onthehouse, Australia’s most comprehensive real estate portal, and Founder of Residex, a leading Australian research organisation providing quality information on the real estate market to government, financial institutions, valuers, real estate agents, accountants, solicitors and the general public. Visit

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